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Global Equity Income Portfolio: November 2021


Global investors were comforted on a few fronts during the month helping to explain why October was a very positive month for global equity returns. The FTSE All-World Index climbed 5.0% in USD terms, while the FTSE All-World High Dividend Index returned +3.5%

• Many corporates reported earnings ahead of market expectations and raised guidance.
• US lawmakers passed a short-term bill to avert a government shutdown. The debt ceiling has however only been pushed out until December and so the issue may return before year end.
• Signs from China appear to be for increasing support for financial markets. The People's Bank of China Governor Yi Gang provided assurance that there will be no contagion from the Evergrande collapse, and liquidity injections have been made. 
• The European Central Bank indicated that there will be a fresh batch of supportive measures after those put in place to support economies during the pandemic expire.

The Global Equity Income model portfolio returned 3.6%. This was more or less in line with the high dividend index, though a little ahead of the fund peer group of 3.1%.

Microsoft was the portfolio’s best performing holding during the month climbing 17.6%. Driven by increasing cloud adoption the company grew free cash flow by 30% and underlying earnings by 25% which was 10% ahead of consensus estimates. Merck and Lloyds were the other strong performers.

On the negative side Admiral slid 4.7%, as a consequence of a large share placing by major shareholder Munich Re. This may be reflective of the challenging claims environment currently faced by reinsurers.

Trading activity was limited during the month. As we have written recently some Chinese equities look to be materially under-priced, given their growth prospects and barriers to entry, but we are cognisant of many of the factors that help explain this and await a time to become more constructive.

We continue to believe that a more material recovery is expected on a full-year basis as precautionary savings fully unwind, and as economic activity recovers off a low base. Continued COVID-19 vaccine rollouts are a positive for the global economy as lockdown restrictions continue to be lifted. Escalating rental and housing costs will begin to be reflected in shelter prices, roughly a third of the inflation basket in the US, and hence pose an upside risk to inflation. A formal tapering plan is expected to be announced by the Federal Reserve at the next FOMC meeting.  For now, at least the backdrop looks supportive for equity prices.